Connect with us

Best Profit International TV

Best Profit International TV

How Bitcoin Work


bitcoin

How Bitcoin Work

Blockchain crypto valute: bitcoin, ethereum, steem, token

Today we’re going to talk to you about the economics of Bitcoin

How Bitcoin Work

I start how many of you have ever bought a Bitcoin or owned a Bitcoin or okay what that’s not bad so much better than my usual you know posh but that’s to be expected so you know I’m going to kind of focus on the economics of Bitcoin you know so I’m not going to get too technical that’s not what you know this is for so just very quickly I will just go over so we’re all on the same page what is Bitcoin just a few basic technical aspects and then we’ll kind of get into the economics of it so what is it it’s this obviously we all know by now it was it’s this digital currency which is completely decentralized right it’s a peer-to-peer network meaning that there is no one monopoly issuer right it’s kind of controlled by this protocol this computer code that generates Bitcoin and there’s no one entity that has any control over it it’s basically this network of computers that is generating Bitcoin and it’s also verifying them and that’s what makes it so interesting because typically when we think of money and fiat money specifically.

You know there’s always one monopoly issuer there’s always a government that’s there issuing it backing it right and this is completely different this is something that you know is basically you know come out of the market and it’s completely decentralized what it does do though right it solves what’s known as the double spending problem which is which is a big problem when you have any kind of electronic data so think about when you you know send an email or send an attachment on an email attached file right you can send one person and then you can turn around and send that exact same file to another person for no cost right it can be perfectly duplicated and sent to somebody else and electronic data or sending value or money to the internet or electronically has the same problem it’s very easy to copy and to double spend and this is the role that commercial banks play.

The role of old banks and today Bitcoin…

They play the role of a third party who are they standing between people creating with each other and they keep the ledger this is what right so when you log into your debit account or your checking account online you have right every sale that you’ve made or every purchase that you’ve made right all the money’s debited it’s gone into somebody else’s ground that’s what that commercial bank is doing they’re keeping of Ledger’s are keeping account okay of all that electronic money otherwise if it was just again if it was just us paying each other we could easily be double spending with each other now the way Bitcoin kind of deals with that problem right again there’s no third party there’s nobody watching the way Bitcoin deals with it is true what’s known as the blockchain which is this completely so it’s instead of having a monopolized third party watcher who’s kind of maintaining this ledger it’s completely publicly verifiable ledger so it’s like everybody’s watching okay everybody is watching this ledger which is called a blockchain which has which is basically a record of all transactions that have taken place now the other cool thing of course is that the way it’s set up or the way the code is written it’s programmed to have only 21 million bitcoins ever to be produced okay and currently the amount that have been mined by sixteen point five million that are in circulation another very important feature which we kind of come back to a little later is the fact that it’s based on an open source software and it’s kind of you know economically significant we’ll come back to it and the way that it works is that miners basic we mine or generate Bitcoin by giving computing power to this blockchain right so you’re verifying transactions you’re giving your computing power to the blockchain and if you are the first one to mine a certain block or basically verify this group of transactions you are rewarded with Bitcoin so it’s kind of like incentive compatible there is an incentive for anybody right anybody can become a miner there’s a monetary incentive if you do it well you are rewarded with Bitcoin and that’s what generates Bitcoin but that’s not it that’s also what actually keeps the ledger the blockchain go and that is what’s verifying the transactions so it’s kind of interesting the incentives that are set up okay so quickly just you know looking at the price right so this is price starting back through time so this is like January oh nine this is when it’s kind of you know when it got started right there obviously it’s like I know nothing going on for a while and you know nobody cared about it right of course here this is when it got really interesting it’s like about a hundred dollars right and this is actually right about when I bought a few Bitcoin right of I would no interest it will come back to this too so this is when I got my hands on a few and it was and this is actually so this was like July or September of 13 and I was actually teaching money in Bank a and I told my students about it and through the semester this is by December this had happened in that course and I was like look I told you guys about this you know you should have bought some you know he would have made a bunch of money already so and then this happened of course when this happened and that have people have been saying look it’s a bubble it’s a bubble it’s going to burst it’s going to burst the point is look bubbles don’t do this you know bubbles don’t go up and then come down then go and go up and then hang around and then stay and then go up again and you know right that doesn’t happen this is not a bubble whatever it is it’s definitely not a bubble right I mean there’s a lot of people every time anything happens you know a lot of people kind of come out of the woodwork saying oh it’s going to fail it’s going to fail it’s you know it’s still around so it’s definitely not a bubble on this is just a kind of metric of how many wallet users there are and it’s again it’s I think it starts in 2012 and again you can see it’s kind of you know always been growing so kind of giving you an idea of okay it’s hanging around right but is it just being used for speculation or is it actually being used as a currency that actually being used you know to do stuff to buy stuff and it is this is again this is a number of confirmed transactions per day it’s kind of you know obviously a very positive trend over time it’s kind of been going down recently I’m not sure why maybe because of the price increase so obviously it’s not just a bubble it’s not just being used for speculation there is there are people who are buying it they’re holding on to it and they are using it to transact okay that’s the data that we have now so the first question I want to kind of think about is okay is this money what is economics tell us can we say Bitcoin is money is it money at all right what what makes money money right how do we define money and basically money is something that’s you know extremely interesting money is defined by its function it’s not kind of defined by its form so if you think of you know what is an apple an apple you know kind of like what an Apple is right an Apple is an apple a banana cannot be enough what is a car a car has certain functions has a certain form right a car cannot be a train but what is money money doesn’t have a certain natural form many different things can be money so money is basically defined by what it does which is fulfill its function as a medium of exchange now what is the medium of exchange right it’s something that you use to transact and to buy goods and services with it’s something that we hold on to only so that we can exchange it again to buy goods and services okay and so if we look through history obviously so many things have been money right so many examples of different types of commodity monies and now more recently we have fiat money paper money electronic money so I mean there’s no real reason why the coin can’t be money the basic question we kind of have to answer is can you use Bitcoin today to buy and sell goods and services okay and if you were just thinking of that is it a medium of exchange today can you buy a bunch of things right will people accept Bitcoin from you and give you goods and services in return and the answer is yes right it is a medium of exchange it is being used as a meet of exchange it’s not extremely widely used yet so I wouldn’t necessarily call it a currency but it definitely is a medium of exchange and it is on money right I mean I think to be called a currency it would have to be something that’s extremely widely used but again there’s no real clear definition there but you know what what can you buy with bitcoins well a lot a lot of stuff today right I mean meals hotel rooms gold movie tickets right anything on overstock.com right so overstock.com sells like you know a lot of million things right any of those things literally you know somebody will sell you for Bitcoin and so that is what makes it a medium of exchange or a money so it definitely is a money because money is what money does and the fact that people will exchange and they’re doing this voluntarily right that’s what’s interesting about it you know which brings me to the next point what type of money is that right okay if it is a money then how do we classify it how do we understand it because a lot of people you know of course when it kind of came on the scene and it’s so interesting you know to monetary economist like what is this is this a fiat money right because it obviously does not have any other kind of value behind it it has no intrinsic value how do we how do we understand this so I like to think of it in terms of Mises this classification of the types of money and so he used three classifications one with credit money fiat money and then commodity money and we’ll kind of go in through it in Reverse so credit money is anything is money that is going to be redeemable sometime in the future okay but currently it is circulating and being used as cash so credit money it’s not something that is very common anymore it used to be at the time that Mises was writing so it would kind of be like an equivalent of like a certificate of deposit you know circulating in exchange for goods and services it’s not something that people really do anymore fiat money of course this is you know we know what fiat money is but technically fiat money is something that is backed by a government and it is in circulation because the government you know put has a legal decree which says this this is legal tender right there are legal tender laws it backs it up and because because people have faith in their governments you know they trust and use this fiat money and typically fiat money is also always paper money right so what you see with fiat money is that face value like a hundred dollar bill and a ten dollar bill have the exact same kind of commodity value to them but they have a very different face value but what’s kind of backing it is the fact that there’s a government there is a monopoly power that is putting its faith into it now the last one which is commodity money and me to classify the further into money proper and money substitute so kind of to just give you an idea what is the money substitute so a money substitute today would be like your checking account balances okay you know every time you swipe your debit card right your checking account balance is going down and somebody else is checking account balance is going up that checking account balance is a money substitute maybe a hundred one hundred fifty years ago there were banks would issue their own notes bank notes and those would be money substitutes so you would go deposit your gold the gold was the money proper the commodity money which had value of itself right value and use value outside of just the fact that it’s some money that’s what a commodity money is and the money substitute is basically a piece of paper that was redeemable for that money proper now there’s been you know a lot of kind of debates so what is Bitcoin isn’t is it is it a money substitute is it is it so-called inside money you know isn’t it redeemable for dollars and my view is that it’s not it’s not an inside money it is it’s just because there is a very well-developed market between the coin and dollars doesn’t make it redeemable for dollars it bears those fine distinction that any time when we use redemption or redeemable on demand specifically with respect to monetary economics what that means is you make a deposit of money and somebody promises to give you back that equivalent amount of money on right there’s no price there it’s one for one right and that price I mean there is no price that price cannot change it’s one for one the difference between buying and selling bitcoins so easily for dollars is that there’s a price and that price fluctuates right and that’s what tells you that that’s that’s not the same thing as it being redeemable so it’s not like Bitcoin is backed up in any sense by dollars just because you can buy and sell them so easily doesn’t make it backed up doesn’t make it redeemable so so Bitcoin is not that it’s not a money substitute which kind of brings me to kind of by elimination it’s the closest thing it is it’s probably commodity money it comes closest to commodity money because it’s kind of behaved like a commodity it doesn’t really have a strong value in use outside of the fact that it can be used as a currency but I mean the fact that you know people chose to hold it you know for speculation or for you know just for the fact that it was something that was cool right in the beginning before it ever had any exchange value right people chose to hold it and to write just to buy it and hold onto it and see what will happen right so it did have some kind of value in use although it’s not that obvious right it’s intangible it’s not something that we think of as a commodity but the closest it comes to is a commodity money or what would be known as an outside money specifically for the fact that it’s not backed up it’s not redeemable in any other thing right and neither does it have any kind of guarantee from any government George Celgene actually has an interesting paper where he comes up with this term called synthetic commodity money to classify Bitcoin which is I think is which i think is a useful term are you saying it’s exactly kind of like commodity money but it’s synthetic but it has most of those features that commodity money has now the big question that you know this is the question that I find most interesting why does anybody use and trust this thing right like I mean is it is it that easy right I mean is it that easy to like start a new currency tomorrow I could do it right I mean if you know it’s this thing up in the air right and people are just buying and putting money into it and it’s fluctuating and it seems like it’s a bad investment why are people trusting it right and this is an important question to answer and it’s it’s so interesting because when it comes to a medium of exchange the question of trust is important okay so if you think of a medium of exchange right versus a consumption good so consumption good meaning anything that you would consume right like like a meal or a car right when you drive your car you’re consuming the car your house you live in the house you consume the house right a medium of exchange is completely different you only ever buy and hold on to a medium of exchange because you know that somebody else will take it from you and give you goods for it right so think of how difficult it is for a new currency okay nobody’s ever heard of this thing right everybody already has their own money okay why should anybody ever hold on to it right if I want to hold on to this and I need to trust somebody else will take it from me right but he has that same problem because it’s a medium of exchange if he’s going to take it from me he needs to know that somebody will take it from him in exchange for goods and services because this is the primary function of money this is why we use money we never consume money right it’s not like an ice cream it’s not like prod right it’s not a consumption but the only reason we ever use a new money so how does the new currency ever get into circulation right people have to trust that somebody else will take it from them so a huge problem so Trust maintaining or creating trust and then maintaining it is is key for any new currency and it’s important for an old currency as well right you have right tomorrow if you know for some reason people lost faith in the dollar earth there was you know a massive amount of impatient people would stop trusting it right I mean something drastic would have to happen at this point you know with respect to the dollar but trust is key for currencies consumption is on the other hand it’s not I mean it’s important you have to be able to trust the reputation of the person but there’s an easy test there right you consume it if you like something if you enjoy it you buy it and that’s what creates the demand for the thing but the demand for a new currency only comes from the fact that people know and trust if somebody else will take it from them in exchange for goods and services and everybody has that same problem right so it’s why so the question becomes why does why did anybody ever start to trust this thing ever to begin with right I mean and I think it’s an important question to kind of think about an answer I think there’s three features or characteristics of Bitcoin and the blockchain that kind of have lent themselves to why people trust it so I don’t think it’s just kind of you know up in the air and it’s you know fickle and it you know today people trust it and tomorrow they won’t that’s not where it’s come from I think you know people trust it for certain solid reasons the one that are using it as currency you know there’s solid reasons behind it and those reasons are you know not going to you know change anytime soon so the first one of course is the fact that it’s a completely publicly verifiable ledger right the fact that you don’t need to trust any third party who has a monopoly power over issuing that money nobody has that monopoly power right and the fact that everybody knows that creates trust because you know even if you’re never actually going to do it you’re like okay I’m going to look this up is this really true I did when I sent it going to so-and-so did it actually go from even if you don’t actually check that up the fact that you know that it is publicly verifiable right that helps create trust right that if you want it to you could okay in the fact that you know that and everybody seems to verify that right that that goes a long way to create trust in this thing the other one of course is that it’s completely a public blockchain which is one which is open to everybody because now there’s you know there’s talk of creating private blockchains which would be like internal to government sort of companies but a public blockchain which is what bitcoin is based on is completely open and free right there’s free entry those free exit so anybody can enter it right and then anybody can leave it and again that helps generate trust because it’s completely decentralized it’s also geographically dispersed okay so it’s no one country or no one nationality kind of has monopoly over it again and that helps generate trust and the third one which is the fact that it’s based in open source code I think is the most significant so I want to talk about it a little bit you know what is open source software just very briefly so open source software obviously has been around for a long time right neck’s is one of the famous examples kind of let’s think of the economics of it and how it works in terms of money so economists have kind of thought about open source software but never really in terms of how it applies to money so the two types of software that you can have is one which is completely owned which is proprietary like a Microsoft or an apple right which is you know the stuff that we use all of us use and its own its proprietary obviously right it’s it’s something that they charge a price for it’s not free there is a they have ownership of the code and they also have control they have rights over changing that code right that’s proprietary software so think of a Microsoft open source on the other hand is completely different right anybody it is completely free right so today any of you could complete could download you know the Bitcoin code if you wanted a health change and you know give them suggestions of how to fix bugs and you can do that okay that’s what open source is it relies on voluntary contributions of basically the public to help keep it going and keep fixing it and making it better right of course the question which you know economists think about is like that’s a free rider problem right why would you ever contribute to something that you’re not getting a monetary incentive right you’re not you’re not getting any gain from it but you still contribute to it and so there’s a huge literature in economics which deals with ok how does how do we explain open source software given free rider problems you know and what they found is that people still voluntarily choose to contribute because they do even though they’re not paid for it that they do they can turn those experiences into like monetizable assets later like you can put it on your CV you can go to Google and say hey you know what I I created this bug for an open source software that means you know I’m pretty talented you know that that that’s how open source has been able to attract really really talented individuals voluntarily supplying effort and time right so just keep this thing going and that’s what bitcoin is powered by right now let’s think of is a proprietary software like a Microsoft right try to create their own currency okay try to basically put it out there you know this is issued by us this is whatever you know call it whatever now think of the trust problem right everybody knows that Microsoft is privately owned its privately controlled right that means you know that they have private ownership and control over that code if they wanted to change it right they tell you upfront hey you know okay whatever it’s 21 21 million units we’re never going to change it you know it’s all set up just the same way but you know that they do have power to change it and they do have power to manipulate it and in their own favor right because it’s based on proprietary software how many people do you think would trust it not very many that currency would not do very well now bitcoins because of the fact that it is based on open source and the fact that everybody knows that it is based on open source is what goes a long way in the fact that people are able to trust it right because no one person can change it to his own personal benefit there is change that can come about but it’s complicated it has to come through consensus right it has to come through many people agreeing on you know these complicated matters and in fact right now there is like this huge debate going on right which is all happening out in the public right about there’s you know there’s a big fork coming up and right that there’s a lot of debate within the Bitcoin community within the developers right which way should we go should we increase the block size or should we go another way right and it’s this is all part of the open source system and what is interesting is that I’ll come back to that in bit this is this way of decision making right where everybody kind of has to agree and no one person has power and it’s all out in the public it kind of seems really chaotic wouldn’t it just be more efficient to you know have a central bank right like have somebody that has that power that has the monopoly over creating decisions and you know putting those things out there and just doing things or a Microsoft that has power to do things right look at this craziness that’s out there look at these Bitcoin people just fighting with each other right now it seems chaotic but it’s actually extreme it’s what lends a lot of strength to the whole system of Bitcoin it’s because of all the stress apparentiy is what leads to a lot of trust right it’s because everything has to be out in the open so even if for example even if the core developers wanted to kind of change the code for their own favor in their own favor it they would have to do it in a public way everybody would know immediately that it was happening right and the moment that happened it most people would stop using it and the thing is that it’s kind of like game theory the developers know that they know this right that other people know that they would do this so you don’t do that because you know you’d be found out immediately and you would lose everything that you’ve built that would be the end of Bitcoin right because if you lose trust if a currency loses trust right especially something like this that’s completely out of the market there’s no you know there’s no central but there’s no FDIC here right I mean it loses trust it’s gone right and so the incentive even if there is an incentive to cheat to manipulate the code in your favor it would the losses would be so great from doing that right that actually creates a disincentive to do that and on the other hand what’s neat is so the software itself is free right obviously you don’t make money off it obviously if you are contributing to the software fixing bugs you’re not making money off that what you can make money off is building applications right off of that open source code so there’s lots of there’s tons and tons of Bitcoin entrepreneurs out there right now right today building apps building right payment systems right making money making a lot of money right being entrepreneurs using that base code to build proprietary applications and what happens is that those entrepreneurs tend to be involved in the development process itself and so now they have actually an incentive to keep it working really well right to keep it transparent to keep it smooth to keep it moving well and to show everybody that we’re not manipulating this thing right because they would be the ones to lose because they’re making money off the fact that it is running smoothly because their applications rely on the fact that the open source code runs smoothly right so there’s actually an incentive built in for them to make sure that the code is running smoothly that it is transparent that it is right that there isn’t any kind of cheating going on and all of this is what goes a long long way towards the truck issue right which is you know a big deal when it comes to money so think of you know contrast you know this weird open out there public consensus decision-making with you know decision-making that goes on behind doors in a central bank with discretion right so not a central bank that you know that’s been bound by a rule but that’s been given discretion with which is what’s been going on a lot right when there’s secrecy and there’s a lot of you know know everybody doesn’t know what’s going on behind doors how they’re making their decisions they’ve been given a lot of discretion that actually leads to distrust right and if you think of the Fed right most people you know and if you ask them their opinion of the Fed you know anybody right it’s like yeah I don’t yeah I don’t understand them but you know they seem to have a lot of flower and right which they do right which they do have a lot of flower and they’re able to make those decisions of course because they have the monopoly power they make decisions and if they do it in a discretionary way it’s what leads to distrust and this is why there’s so much push within economists for you know constraining central banks with a rule right with a rule that is public with a rule that is transparent and so that everybody hopefully will know the process of decision-making so what are some of the advantages of using Bitcoin right you know what what are the private advantages of using it so obviously it it allows you to have a lot of privacy right you don’t have to put a lot of you know and your name any of your public information out there you just have a password that you kind of have to keep safe and you have a unique public address and it’s all through the use of cryptography right it’s much much more private than current credit cards and the credit card system or even PayPal right it’s a lot of personal information out there which is what leads to a lot of fraud every year you know the amount the percentage of fraud and you know identity theft that goes on through the payment system internationally it’s pretty large and Bitcoin gives you that advantage where you’re not putting any private information and so that’s a that’s an obvious advantage so and plus linked to that is of course to lower chance of fraud the biggest advantage which is you know which is what has led it to be so successful is the lower transaction fees for merchants okay it’s the merchants or you know the shopkeepers the hotels right that are like an over Starcom accepting Bitcoin and why is that because they have a monetary incentive to do to do it because every time you accept a credit card payment or a debit card payment as a merchant you have to pay a three percent fee to the credit card provider and with Bitcoin what a lot of these companies like bitpay and coinbase have been able to do is process payments in the same way except Bitcoin converted to dollars immediately for the merchants or or keep it in Bitcoin if you want to but for a much lower fee 1% or less okay in many times it’s free it’s a zero percent right so now if you’re a merchant it’s like a no-brainer right I mean why not just tax a Bitcoin on the margin okay I accept credit card payments debit card PayPal Visa whatever plus Bitcoin because if people do pay with Bitcoin I’m going to save two three percent on every sale which is big which is actually a large part of you profit margin right when you’re a business owner which is actually the key to the current success so currently there are several hundred thousand merchants all over the world that accept Bitcoin I read about something in Japan that there’s about to be something like 250 thousand more merchants are going to start accepting Bitcoin in Japan that’s kind of the key to the success and the other thing which is really cool is the ease of transfer the speed of transfer so I could send Bitcoin to use sitting right here in the same amount of time that I can send it going to somebody you know across the world basically right which is which is amazing right so if you think of think of people in the developing world people who do not have access to the traditional you know financial systems that we we just take for granted right like a debit card ATM you know it’s whatever app on your phone but these things don’t exist in most of the world in Africa and Asia and something like Bitcoin where you just have to have a phone right you just need a phone an app and Internet connectivity right something like that where you can send money across large distances right which is safe right because places which don’t have a well-developed financial system what you basically rely on its cash or you rely on like expensive wire transfer right and/or remittances sending money back home those kinds of things are you know a huge huge step up that’s why you know you’ve heard of things like in Africa things like M paisa and mobile money right that if they can kind of have become a big deal but mobile money again is still it’s not it’s it’s just a money substitute it’s not a money of its own something like this is more sophisticated and it’s actually safer and faster okay those are advantages what about the challenges right now you know way more challenges than you know so Bitcoin has had a lot of success right but it’s still not kind of anywhere close to being this well accepted you know currency that everybody uses and and that’s I mean it’s done amazing for for you know where it started right something like this nobody thought would ever exist certainly not you know anybody who studies monetary economics it’s you know it’s fascinating the fact that you can go out and buy a bunch of things it’s pretty amazing the fact that people use it they trusted but is it is it a widely used currency yet no is it going to get there we don’t know yet and maybe not the thing is if you think of the United States or you think of any place which already has a you know well-functioning fiat money system with a central bank I mean it’s really hard to overcome so I’ll talk about the network effect it’s really hard to overcome what’s known as the network effect right so everybody is it’s like think of like Facebook cred which is this huge network now if a new social media or something wanted to kind of compete with Facebook right or to take them over or to have people switch I mean that’s really hard because everybody is connected right and the question is who moves first and why there’s a huge what’s known as a switching cost why should I ever switch from what I have already which is working so well for me to something new that I don’t know I don’t I don’t know how to use it plus I don’t even know if I’m going to have any of my other buddies on it why should I ever change right so it’s kind of the same thing Bitcoin faces huge incumbent the huge incumbent work effect of the dollar and any other major currency that is functioning well and that’s kind of the reason why it’s been successful anytime that there is large amounts of inflation or hyperinflation or you know countries that have seen political instability recently that’s where bitcoin adoption rates have been increasing right which is a good thing right which is which is a good thing for those people because now they have a choice they don’t have to lose all their savings or all their money just to you know the fact that their currency is being inflated away they can hopefully save some of that by converting it into Bitcoin and hopefully and then converting it into some other currency but that’s not the same thing as it being adopted you know it’s not the same thing as that being adopted during normal times right and that’s the real question do we see a shift from the dollar to Bitcoin well I don’t know that that’s you know that’s a difficult question and again the biggest challenge I think is that right now there’s no real monetary incentive to use it for consumers for you and me right like how many of us so a bunch of us own Bitcoin but how many of us use it to buy things how many of you have used it to buy things okay yeah exactly that’s kind of my point right like we buy it oh this is cool like I’m going to show my friends right like I said right like get with it right like do you own this point you know but how many of us actually use it no well I mean and it’s part of it is of course it’s kind of like confusing okay how does this really work how do I actually do this right the other part is that there isn’t actually a monetary incentive the way there is for merchants right for merchants it’s clear like you you save two or three percent on every sale you’re going to start accepting that thing and so if there were similar monetary incentives for consumers to think of like okay if you play with Bitcoin like if Amazon said okay dollar price so-and-so but if you play with Bitcoin you get five percent less you get a five percent lower price which is basically a discount for using Bitcoin I think you know more people would start to you that we would take that make that effort to okay how does this thing work am i saving five percent I’m going to do this right right I mean it’s a 5% cash back where’s the 3% you know you go for the 5% so if there was some kind of monetary incentives you know and and this may happen it hasn’t really happened yet I mean it happens sometimes you know there’s like a Bitcoin Black Friday so if you pay with Bitcoin you can buy a bunch of things for super cheap and you know and at those times you see a lot of people using and selling and you know paying with their Bitcoin but because there’s no clear monetary incentive you know consumers don’t really have a reason to use it and of course the fact that you know it’s a high informational burden right so this is kind of like a bias group right but right I mean it’s kind of like a vise crouppen you know maybe 20 30 percent of you you know own Bitcoin but if you just go out like you know I ask my students in my class and they’re like who cares you know I have my debit card I have I mean my bank account is insured by FDIC you know I mean it I know that money is not ever going anywhere right it’s safe I mean look at this thing the value fluctuates I mean I don’t want to buy it I don’t want it right and so it’s it’s this huge informational burden on consumers right first of all you have to understand it you have to know how it works right you have to kind of keep up with what’s going on what’s going on with the price what’s going on right and this is all kind of in an age where we are used to right we’re used to having it easy we just have ATMs and we have credit cards and debit cards right I mean so this is coming back to the story of what happened to my Bitcoin so so that’s what I bought it when it was a few hundred it was it was a hundred dollars I bought a few Bitcoin and well you have a Bitcoin and you have this gigantic password right like it’s super long right and you need to keep that thing safe and I lost the password embarrassing I know so I mean but that’s kind of part of the story why it’s you know it’s kind of you know when people think of putting value and putting money into it right it’s inconvenient you now have to keep that thing really safe because if you lose that pass or that bitcoins gone forever right I mean it’s not like when you check in you know you log into your checking account and you lose your password they say oh did you forget your password you can reset it right that money’s not going anywhere right you’re never going to lose it because you forgot a password right and so I mean true story it happened to me right I mean I try not to think about what it would be worth today yeah I don’t think about that but it’s just a lot more work which I think most people write this is a bias group but you know most people in the population they’re not really willing to do that work when you have fiat money you have FDIC that insures your checking account you have a forgot your password right never lose your money right even if that’s what FDIC does right even if your bank goes bankrupt they will protect your money and they will pay you right whatever is in your checking account right so what that does is create this huge burden and I think over time what has happened is people are just kind of become complacent you know that there’s been you know in choice of monetary products we don’t really have money right you have fiat money you have your one currency and then I mean you have a choice in banks but are they really that different I mean if all of them you know if FDIC insures all your checking accounts any bank you go to you’re right it’s not really different right do you really care do you really you know check up on what they’re doing with your money right and this is kind of the problem right so it created a you know historically so much lack of competition in any kind of week we don’t even think that way right monetary goods competing with each other like that that’s not a possibility ever right and so just that has made you know every most people are complacent and it’s kind of hard to you know shake people out of that it is and it’s even harder because it’s the money right again if you think it’s like a consumption good right if something had not had any competition that was kind of control let’s say like in a socialist country like cars right you know I’m from India there used to be just one car when it was socialist there was literally one car the government you know made this one car and everybody had this one car guess what happened when the country little eyes right and there was competition there’s like ten kinds of cars okay now of course people are kind of hesitant okay you’re hesitant to try something new there’s choice there’s you know there’s competition there’s new things out there but I mean you still try it right and if you’re like okay if I don’t like it I’ll just go back to my old car right guess what everybody has like you know everybody has either a Chevy or like you know yeah I mean it’s like a Honda or a candy or you know that’s what everybody drives now in India right because it’s a consumption good it’s much easier right the test is just whether it provides a value in use and if it does then you shift and you switch but with the currency the test is much harder because you’re only going to use it if you know other people are going to use it right and so and other people are going to use it if you’re going to use it so it’s kind of this lock-in thing right plus if it comes with these high informational costs we’re a Bitcoin you know all these things and know what’s going on with it and right you may lose money if it’s prices fluctuating right it’s Thursday huge these are the challenges and the hurdles that it faces and that’s kind of why I think that if if there were more applications that actually offered customers a monetary incentive for using it right like if there was an app that you could download and you know literally say okay I want to pay with this and it’s going to literally buy Bitcoin and use Bitcoin to pay and you’re going to have like a three or four or five six percent discount at the end of it then people would do that right and you would do that and there is actually this thing it’s called fold app has anybody heard of this fold that yeah check it out it’s they do this so they’re doing this and they’re trying to it’s currently only for Starbucks apparently if you use their app I don’t know how they do it but they it amounts to like a 20% discount on Starbucks coffee which is good right I mean this is like Starbucks is expense so fold up which is basically you use Bitcoin to say and you ultimately end up getting a 20% discount on a Starbucks coffee which is pretty neat right and what they’re trying to do is scale up to more retailers like you know I I think Whole Foods and you know yeah we need discounts at Whole Foods right okay so just to conclude quickly so I think some of the big takeaways are but you know bitcoin is kind of you know being this controversial thing and every you know a lot of people oh it’s it’s crazy it’s going to fail it’s going to you know this is there’s too much volatility there’s too much failure that’s too much loss there’s too much bankruptcy but that’s how markets work and markets are not perfect and this is the neat thing about Austrian economics is that we take this into account right we know that entrepreneurship and real life markets actually have failure and loss and they’re not going to be perfect and neither is Bitcoin and it’s not going to be perfect and we shouldn’t expect it to be so anytime you see another company failing and you know somebody saying oh this is the end of it no you know but that’s just normal that’s just how markets work and it’s for the first time what is really interesting to me is that we it’s a very rare moment that we’re seeing competition in a monetary product right which which doesn’t really it’s a rare moment in history because it’s currently largely unregulated still and so there’s just a lot of entrepreneurship there’s a lot of properties a lot of laws we’re seeing a lot of right up and down and it’s extremely interesting to watch what competition in a monetary good looks like and I mean it’s not going anywhere Bitcoin blockchain definitely blockchain as well it’s kind of you know going to only get stronger I mean governments are starting to use the blockchain to set up property title registries you know so this technology is it’s definitely here to stay but at the base of it I mean we should all be kind of supportive and optimistic about something like Bitcoin because ultimately what it’s doing is creating a choice right I mean even if today has somebody in the United States you don’t really see a need to use it but it’s there it gives you a choice right and if you need it to you could use it right so so it’s somebody in Argentina somebody you know in a war zone I think of that right it gives them a choice and for that it’s an extremely good thing and we should all you know be supportive of it for that reason okay thank you you

As found on Youtube

Facebook Make Money Online

To Top